Britain shakes off global gloom as business confidence surges

British business confidence has risen to the highest level since January 2008,
despite sluggish prospects in Europe, driven by a new mood of optimism in
the UK market and hopes of rising orders in America and the rest of the
world.

Lloyd’s TSB bi-annual survey of companies shows firms expect to boost spending on machinery and take on more staff over the next six moths, with the East Midlands the most exuberant region and small firms enjoying the biggest jump.

Animal spirits are highest in the manufacturing sector, a sign that coalition policies aimed at rebalancing the economy towards industry are starting to bear fruit.

The report says the UK confidence index has jumped 11 points to 30pc over the past six months. It is now well above its historic average of 21pc.

Some 50pc of firms expect sales to grow in the second half of 2013, with just 14pc bracing for a fall. “Businesses are clearly beginning to regain confidence about future trading prospects, after years of hesitation and concern,” said David Oldfield from Lloyds Banking Group.

Firms still have lingering worries about the strength of recovery and are finding it hard to pass on costs in higher prices. This is eroding profit margins for a fifth of all companies.

The latest jump in overall confidence is largely driven by the internal rebound in the UK economy. Firms have lowered their export hopes slightly since January on weaker prospects in Europe.

A report last week by Standard & Poor’s on the world’s 2,000 largest companies painted a very different picture, suggesting that there is likely to be an outright fall in global capital investment for the first time since the Lehman crisis. It would be difficult for Britain to go it alone against a broader slowdown.

The UK’s internal rebound is good news on one level, and further evidence that emergency measures by the Bank of England have done wonders to offset the shock of budget cuts. Yet it is unclear whether domestic growth is sustainable.

The International Monetary Fund expects Britain’s current account deficit to reach 4.4pc of GDP this year, the highest level since the late 1980s and far worse than the US (-2.9pc), or France (-1.3pc). Italy (+0.3pc) and Germany (+6.1pc) will both be in surplus. The poor performance is remarkable given the 20pc trade-weighted fall in sterling since 2008.

Holger Schmieding from Berenberg Bank says Britain has been keeping growth alive at a very high price, by running huge fiscal deficits, and is now “living beyond its means”.

A rebound in oil output from the North Sea as new technologies come on stream could help mitigate this to some degree but Britain’s chronic trade deficit could become a serious concern.

The Telegraph Investor

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